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India oil data – Mar 2017

Indian oil demand fell y/y by 28 thousand b/d in March to 4.37 mb/d, weighed down by declines in fuel oil (-35 thousand b/d), kerosene (-38 thousand b/d) and naphtha (-6 thousand b/d). As expected, the weakening in the pace of LPG demand growth (+13 thousand b/d y/y) also weighed, given the sharp increase in the price for those consumers using non-subsidised cylinders. The headline demand reading is not a cause of concern, nor the start of a slowdown in our view, as this masks the fact that March 2016 was on a high base (having grown by 0.7 mb/d). Most importantly, post demonetisation, diesel (+5 thousand b/d y/y) and gasoline demand (+16 thousand b/d y/y) have recovered, and lead indicators are shaping up for growth momentum to build further over the coming months. Q1 17 demand was always likely to be weak given the impact of demonetisation on the economy, and we expected a y/y decline, but with the overall y/y decline for Q1 17 at 89 thousand b/d on a base that rose by 0.54 mb/d in Q1 16, this shows the robustness of underlying trends in the country. We expect Indian oil demand to grow by 0.24 mb/d over 2017 (~5%), led largely by diesel, gasoline and LPG.

Indian refinery runs increased m/m by 54 thousand b/d to 5.04 mb/d but were lower y/y by 13 thousand b/d. Runs at Paradip rose to a record high of 0.29 mb/d but problems with the disposal of petcoke have curtailed runs since. We expect India’s Q2 17 turnarounds to average 0.24 mb/d. Additionally, refineries have reduced processing rates to work through the logistics of meeting the new specification changes from 1 April, and in the interim are exporting far higher volumes of naphtha as they experiment with new gasoline blending recipes. Alongside peak naphtha cracker maintenance of 1.3 Mtpy, naphtha exports will remain high in April too.